Because of the high unemployment rates during the COVID-19 pandemic, many people have been working freelance gigs on the internet as an alternative or even secondary income source. But it’s not easy being a freelancer. It can be difficult to make money on your own terms and own time.
Freelancing is very much a feast-or-famine occupation. And in a sense, you’re pretty much on your own. You’re required to handle both your personal and business finances. It also involves taxes and legal situations that you may not be equipped to deal with on your own. Here’s a list of things you need to know about managing your finances.
Make a separate account for your business
This makes your bookkeeping process a lot easier. You won’t have to pause to think about which transactions are business-related and which are not. It sounds like a simple distinction, but it will save you from a big headache later on. Having a separate bank account will also offer your clients a more professional experience with their transactions.
Seek financial help
A lot of freelancers don’t have extensive experience with managing finances on a business level. If you’re one of those people, you’ll benefit from seeking the advice of professionals. Working with them will not only provide you with the help you need, but you’ll also pick up a few things on managing finances along the way.
An accountant is capable of doing more than just bookkeeping and payroll. They can also help you with planning your business from day one. They can advise you on how to maximize profit and minimize costs in the long run. They can also help you get the necessary permits and documents. You can also opt to use accounting software such as the well-known QuickBooks.
Because every business will involve dealing with taxes, you might want to consider consulting a taxation compliance attorney as well. They’ll be able to help you with legal matters, but they can help with other things too. Like an accountant, they can also help you with your business plan. They can advise you on what business structure will give you the lowest taxes possible. They can also help you with your company’s tax treatment.
Keep track of all your expenses
Ideally, you should already be doing this for your personal transactions. Though it may be easy to think otherwise, even freelancers and small business owners need to have a budget to stick to. Remember that at this point, it will be hard for you to have a stable income. Even if you’ve established a few loyal clients, your income is still likely to fluctuate.
Track your every purchase. (If you’ve hired an accountant, they will do this for you.) It’s just as important to know exactly how much you’re spending as it is to know how much you’re earning. Keeping track of both will let you know if you’re spending too much, earning too little, or vice versa. This is another reason why it will do you favors to keep a separate bank account for your business. You don’t want your personal expenses to get muddled with your professional ones.
Doing this will help you determine many things, such as plan your taxes. When you’re an employee, your taxes are automatically deducted from your paycheck. But when you work for yourself, you don’t get to enjoy that same benefit. You need to remember to set aside an amount for your taxes.
Plan and predict
Running a business involves planning for the future and for every possible emergency you might encounter. One of the things you’ll need to do is make a financial projection for the next year. This is a prediction of what your business’s financial performance will look like in the future based on how it’s been doing so far. This can be hard to predict, especially in the early years of your business, so don’t worry if it all feels like rough guesses.
Creating a financial projection will prepare you to deal with a financial emergency, should one occur. It will also help you to grow your business. For instance, you’re looking to get investors. Investors need data on your company’s past performance and an estimate of your future performance to make an informed decision of whether they should invest in your company.
Working as a freelancer or small business owner can be tricky. Unless you can seek help from a finance expert, you’ll be tracking all your finances. Doing this is important because it allows you to plan for your taxes, contingencies, and the future of your company.